New Lazard analysis shows that wind energy costs have dropped 69 per cent since 2009
November 26, 2018
Building and operating new wind energy can cost less than continuing to operate fully-depreciated conventional generation facilities
Wind energy has solidified its position as the most cost-effective source of new electricity generation, coming in now at less than one-third the price seen in 2009. The full “levelized cost” (LCOE)* for a megawatt-hour of onshore, utility-scale wind energy in the United States is now between US$29 and $56 on an unsubsidized basis, according to an authoritative analysis just released by U.S. investment firm Lazard.
Wind energy costs have dropped 69 per cent since 2009, and seven per cent just in the last year. In comparison, the key conventional energy sources of coal plants, natural gas combined cycle plants, and natural gas peaker plants have seen much more modest declines in the same period, while the LCOE of nuclear has actually increased.
The mid-point of the cost range for wind energy – US$42 – is lower than any of the alternatives. The cheapest conventional generation is natural gas combined cycle, with the mid-point of its cost range at US$58. Coal and nuclear come in much higher at US$102 and US$151 respectively.
Remarkably, the low-end of the wind energy cost range also falls within the range of operating costs alone for existing nuclear and coal generation. In other words, it can be less expensive to build and operate new wind generation than to continue to operate fully-depreciated conventional generation facilities.
Wind has relatively modest capital costs, and no fuel costs. These advantages are consistently reflected across specific national markets and regions that Lazard breaks out in its analysis. In Brazil, for example, the high-end of the cost range for wind is actually lower than the bottom-end of the cost range for natural gas combined cycle (US$64 vs. US$78). Put another way, the most expensive wind costs less than the cheapest gas.
Recent experience here in Canada – where procurement rounds in both Alberta and Saskatchewan resulted in highly competitive wind energy prices – confirms that Lazard’s conclusions hold true in this country. Ongoing technology improvement, lower input costs, increased efficiency and robust competition are clearly driving the “dramatic historical LCOE declines” that Lazard quantifies.
The recent procurements in Saskatchewan, where the average bid price was CDN$37.50 and the winning bid came well in below that, demonstrates that wind energy can be built in Canada at costs closer to the lower end of the price range identified by Lazard, when translated into US$.
Further development of our extensive wind resources remains key to offering the country a competitive advantage in global efforts to cut carbon pollution and delivering clean growth, while powering Canada’s economy as it shifts from fossil fuels to clean energy. What this latest update underscores is that wind energy also makes very compelling cost-management sense – more and more so every year in fact.
* Levelized Cost of Energy is the net present value of the unit-cost of electricity over the lifespan of a generating asset. It indicates the average market price that the generating asset needs to earn.